Price of gold up by a tenth amid financial and economic gloom

The price of gold has risen by 8% since the start of the credit crunch. In contrast, stock prices have declined with the FTSE 100 falling by 28% over the same period, according to new findings from Clerical Medical.

Financial market uncertainty, rising inflation and a weakening US dollar have all contributed to the strengthening in the price of gold.

Gold prices reached an all time high of $1,012 per ounce in March, 59% above the five year average ($593 per ounce).

The average price of gold has fallen back markedly since peaking in March, declining by 28% to ($729 per ounce) .

The price of gold rose by 32% in 2007, the biggest annual gain in the past 28 years and significantly higher than the typical growth in commodity prices2 (21%).

The 149% rise in the average price of gold between 1998 and 2008 was nearly double the growth in commodity prices (82%).

Martin Ellis, chief economist at Clerical Medical, commented: "The average price of gold reached a record high in March as investors sought to safeguard the value of their investments against a backdrop of financial market turmoil, rising inflation and a weakening US dollar. Gold prices, however, have fallen back since then with the strengthening in the value of the US dollar a key factor behind this reversal."

"Nonetheless, the recent price declines must be put into context. The average price of gold has increased by 149% over the past decade, nearly five times the increase in inflation."

Recent Gold Price Movements

Gold provides safe haven to investors
The average price of gold has risen by almost a tenth since the start of the credit crunch, according to new research by Clerical Medical. The price of gold has risen by 8% since August 2007 (from $675 to $729 per oz), five times the growth over the 14 month period before the onset of the credit crunch (1.5%)

The global financial turmoil and fears over inflation have seen many investors turn to gold as a safe haven in uncertain times. In contrast, stock prices have fallen sharply since August 2007 with the FTSE 100 and Dow Jones both declining by nearly 30%.

In addition to the global financial uncertainty, rising inflation and a weakening US dollar also contributed to the rising demand for gold. UK inflation has nearly trebled since August 2007 from 1.8% to 5.2% in September 2008, increasing the popularity of gold, which is often viewed as the ultimate store of value.

The price of Gold falls from record high
The average price of gold has fallen back by 28% since it reached an all time high of $1,012 per ounce in March 2008. The recovery in the value of the US dollar and concerns over the potential impact of the deteriorating economic outlook will have on demand have been the key factors behind the recent decline in gold prices.

Gold Price Movements 1998 - 2008

149% increase in the price of gold
Over the past ten years, the average price of gold has more than doubled. The price of gold rose from $293 per oz in October 1998 to $729 per oz in October 2008; an increase of 149%, four and a half times the increase in retail prices (33%). In contrast, UK share prices have declined by 20% over the same period. Over the last five years, gold has outperformed the FTSE 100 by a considerable margin with gold prices rising by 88%, compared to a 2% increase in UK stock prices.

Gold prices increase by nearly double the rise in commodity prices
The 149% rise in the average price of gold between 1998 and 2008 was nearly double the growth in general commodity prices2 (82%). Within the precious metals sector, gold significantly outperformed silver (84%), but recorded a marginally smaller increase in comparison to platinum (152%).

Gold prices rise 32% in 2007
The price of gold rose by 32% in 2007, the biggest annual gain in the past 28 years and significantly higher than the growth in commodity prices2 (21%). Over the same period, UK stock prices increased by 4%.

Outlook for gold prices

Gold prices set to moderate
With inflation expected to decline sharply over the coming months and the deteriorating economic outlook set to stifle 'fabricated' demand for gold (i.e. the manufacturing use of gold), the average price of gold is likely to fall over the next year. The extent to which gold prices moderate could significantly depend on the strength of the US dollar in the medium term.